Self-Regulatory Organizations; International Securities Exchange, LLC; Order Approving Proposed Rule Change To Amend Exchange Rules Related to Cut-Off Time for Contrary Exercise Advice Submissions, 13636-13638 [2010-6204]

Download as PDF 13636 Federal Register / Vol. 75, No. 54 / Monday, March 22, 2010 / Notices offered by the financial institution.45 FINRA also noted that, where necessary, members may use the short form legend as provided in proposed FINRA Rule 3160(a)(4)(B) on business cards. IV. Discussion and Finding After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association.46 The Commission believes that the proposed rule change, as amended, is consistent with the provisions of Section 15A(b)(6) of the Act, which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest.47 In particular, the proposed rule change, as amended, will clarify and streamline the FINRA requirements for broker-dealer networking arrangements and better align FINRA requirements with GLB and Regulation R. This, in turn, should promote member firm’s compliance efforts. V. Accelerated Approval The Commission finds good cause, pursuant to Section 19(b)(2) of the Act,48 for approving the proposed rule change, as amended by Amendment No. 1 thereto, prior to the 30th day after the date of publication in the Federal Register. The changes proposed in Amendment No. 1 are minor, and do not raise novel regulatory concerns. Moreover, accelerating approval of this proposal should benefit FINRA member firms and investors by more closing aligning, without undue delay, FINRA requirements with both GLB and Regulation R. VI. Solicitation of Comments pwalker on DSK8KYBLC1PROD with NOTICES Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: 45 See FINRA Interpretive Letter to Tamara K. Salmon, Investment Company Institute (September 6, 2007). 46 In approving the proposed rule change, the Commission has considered the rule change’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 47 See 15 U.S.C. 78o–3(b)(6). 48 15 U.S.C. 78o-3(b)(5). VerDate Nov<24>2008 16:41 Mar 19, 2010 Jkt 220001 Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–FINRA–2009–047 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–FINRA–2009–047. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FINRA–2009–047 and should be submitted on or before April 12, 2010. VII. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,49 that the proposed rule change (SR–FINRA– 2009–047), as amended, be, and hereby is, approved on an accelerated basis. 49 15 PO 00000 U.S.C. 78s(b)(2). Frm 00154 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.50 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–6214 Filed 3–19–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–61710; File No. SR–ISE– 2010–02] Self-Regulatory Organizations; International Securities Exchange, LLC; Order Approving Proposed Rule Change To Amend Exchange Rules Related to Cut-Off Time for Contrary Exercise Advice Submissions March 15, 2010. I. Introduction On January 11, 2010, the International Securities Exchange, LLC (the ‘‘Exchange’’ or the ‘‘ISE’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change relating to the cut-off time for submitting contrary exercise advices to the Exchange. The proposed rule change was published for comment in the Federal Register on February 8, 2010.3 This order approves the proposed rule change. II. Description of the Proposal The Exchange has proposed to amend Rule 1100 to extend the cut-off time to submit contrary exercise advices (‘‘CEAs’’) 4 to the Exchange to 7:30 p.m. The Exchange also has proposed to make certain non-substantive changes to reorganize the text of Rule 1100 to more clearly present the existing requirements and to eliminate duplicative language. Pursuant to Rule 805 of the Options Clearing Corporation (‘‘OCC’’), certain options that are in-the-money by a specified amount will be automatically exercised. This procedure is known as ‘‘Exercise-by-Exception’’ or ‘‘Ex-by-Ex.’’ Under the Ex-by-Ex process, options holders holding option contracts that are in-the-money by a requisite amount and who wish to have their contracts automatically exercised need take no 50 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 61458 (February 1, 2010), 75 FR 6237. 4 Contrary exercise advices are also referred to as Expiring Exercise Declarations in the OCC rules. 1 15 E:\FR\FM\22MRN1.SGM 22MRN1 Federal Register / Vol. 75, No. 54 / Monday, March 22, 2010 / Notices pwalker on DSK8KYBLC1PROD with NOTICES further action. However, under OCC Rule 805, option holders who do not want their options automatically exercised or who want their options to be exercised under parameters different than the Ex-by-Ex procedures must instruct OCC of their ‘‘contrary intention.’’ Pursuant to ISE Rule 1100 option holders must also file a CEA with the Exchange notifying the Exchange of the option holder’s contrary intention. ISE Rule 1100 is designed, in part, to deter individuals from taking improper advantage of late breaking news by requiring evidence of an option holder’s timely decision to exercise or not exercise expiring equity options. Members satisfy this evidentiary requirement by submitting a CEA directly to the Exchange, or by electronically submitting the CEA to the Exchange through OCC’s electronic communications system. The submission of the CEA allows the Exchange to satisfy its regulatory obligation to verify that the decision to make a contrary exercise was made timely and in accordance with ISE Rule 1100. ISE Rule 1100 currently provides option holders until 5:30 p.m. on the day prior to expiration to make a final decision to exercise or not exercise an option that would otherwise either expire or be automatically exercised. An Exchange member may not accept CEA instructions from its customer or noncustomer accounts after 5:30 p.m. The current rule, however, gives Exchange members up to 6:30 p.m. to actually submit these CEA instructions to the Exchange where such member uses an electronic submission process. Pursuant to the rule, if members do not employ an electronic submission procedure, they are required to submit CEAs for non-customer accounts by the 5:30 p.m. deadline. This 5:30 p.m. deadline for manual submission of CEAs for noncustomer accounts is earlier than the electronic submission deadline to prevent firms from improperly extending the 5:30 p.m. deadline to exercise or not exercise an option.5 In either case, whether or not submitting the CEA electronically or manually, the final decision to issue a CEA instruction must be made at 5:30 p.m. This current process of submitting CEAs was approved by the Commission in 2003.6 The Exchange represents that 5 According to the Exchange, this requirement is based on the difficulty of monitoring a manual procedure that has different times for deciding whether or not to exercise the option and for the submission of the CEA. 6 See Securities Exchange Act Release Nos. 47885 (May 16, 2003), 68 FR 28309 (May 23, 2003) (SR– Amex–2001–92); 48505 (September 17, 2003), 68 VerDate Nov<24>2008 16:41 Mar 19, 2010 Jkt 220001 in 2003, the Ex-by-Ex thresholds were $0.75 for customers and $0.25 for broker-dealer accounts. In 2009, the Exby-Ex threshold had narrowed significantly to $0.01 for all accounts. The Exchange notes that this decrease in the Ex-by-Ex threshold, coupled with the dramatic increase in option trading volume from 2003 to 2009, has led to a larger number of CEA instructions and has increased the burden on firms to process and submit instructions on a timely basis. As a result of these concerns, the Exchange has proposed to extend the current 6:30 p.m. deadline for electronic submission of CEA instructions to the Exchange by one additional hour, to 7:30 p.m. In its filing, the Exchange stated that the proposed rule change is necessary to address concerns expressed by members that, given the decrease in the Ex-by-Ex threshold and the increase in trading, the existing deadline for submitting CEAs to the Exchange is problematic for timely back-office processing. According to the Exchange, the proposed additional one hour will address this concern by further enabling firms to more timely manage, process, and submit the instructions to the Exchange. The Exchange also proposes to allow a member to submit a CEA to the Exchange by 7:30 p.m. on a day when there is a modified close of trading. The current rule allows a member to submit an electronic CEA to the Exchange up to 2 hours and 30 minutes after the close of trading on a day when there is a modified close of trading. The proposed rule change will make the submission deadline for electronic CEAs on both regular and modified close expiration days uniform and, according to the Exchange, this should help to reduce errors. The ISE noted in its filing that the proposed rule change does not change the substantive requirement that option holders make a final decision by 5:30 p.m. whether to exercise or not exercise an option that would otherwise either expire or be automatically exercised. The Exchange represented that it will continue to enforce the 5:30 p.m. decision making requirement, while also allowing additional time to process and submit the CEA instructions. As noted in the filing, the Exchange believes that the proposed rule change will benefit the marketplace, particularly back-office processing. The Exchange also represents that the FR 55680 (September 26, 2003) (SR–ISE–2003–20); 48640 (October 16, 2003), 68 FR 60757 (October 23, 2003) (SR–PCX–2003–47); and 48639 (October 16, 2003), 68 FR 60764 (October 23,2003) (SR–Phlx– 2003–65). PO 00000 Frm 00155 Fmt 4703 Sfmt 4703 13637 additional processing time and Exchange submission deadline will not conflict with OCC submission rules or cause any OCC processing issues. III. Discussion and Commission’s Findings After careful review of the proposed rule change, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.7 In particular, the Commission finds that the proposed rule change is consistent with the provisions of Section 6(b)(5) of the Act,8 which requires, among other things, that ISE rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission believes that the proposed rule change is appropriate because, by extending the deadline to submit electronic CEAs from 6:30 p.m. to 7:30 p.m., the proposal should provide Exchange members with sufficient additional time to process the CEAs submitted by options holders which, according to the Exchange, have steadily increased with the increased options trading volume of recent years and the narrowing of the Ex-by-Ex threshold. Thus, consistent with Section 6(b)(5) of the Act,9 the proposal will foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, by addressing the back-office processing problems noted by the Exchange that exist under the current 6:30 p.m. deadline for electronic submission of CEAs. In approving the proposal, the Commission emphasizes that the Exchange is not changing the time by which options holders must notify Exchange members of the contrary intention, which will remain at 5:30 p.m., and will continue to be enforced by the Exchange as it is currently. 7 In approving this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition and capital formation. See 15 U.S.C. 78c(f). 8 15 U.S.C. 78f(b)(5). 9 Id. E:\FR\FM\22MRN1.SGM 22MRN1 pwalker on DSK8KYBLC1PROD with NOTICES 13638 Federal Register / Vol. 75, No. 54 / Monday, March 22, 2010 / Notices Because the deadline for options holders to make a decision to exercise or not exercise an expiring option that would otherwise either expire or be automatically exercised is not changing, the Commission also believes that proposal will not compromise one key goal of the rule, which is to prevent individuals from taking improper advantage of late-breaking news. The Commission also notes that the time for submission of CEAs for noncustomer accounts on a manual basis will remain at 5:30 p.m. The Commission continues to believe that this time difference for manual submissions is warranted given the potential difficulties in monitoring compliance with a manual procedure, as noted by the Exchange.10 The Commission also believes that the Exchange’s proposal to change the deadline for submitting CEAs to the Exchange to 7:30 p.m. on days when there is a modified close of trading is appropriate. A uniform deadline for submitting CEAs, irrespective of the closing time, will eliminate any possibility for error when determining what the submission deadline is on a modified close expiration day. As described above, current rules set the deadline on modified close expiration day at 2 hours and 30 minutes after the close. Since the modified close time does vary on these modified days, the CEA times could vary as well, which may have proved confusing to Exchange members. Thus, the change to a 7:30 p.m. cut-off for all electronic submission of CEAs, irrespective of the market’s closing time, should help to avoid confusion and reduce the potential for errors. Finally, the Commission also finds that the Exchange’s nonsubstantive changes to the text of Rule 1100 to more clearly present the existing requirements and to eliminate duplicative language is appropriate. Based on the above, the Commission believes that the proposed rule change is consistent with Section 6(b)(5) of the Act 11 in that it will prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, protect investors and the public interest. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,12 that the proposed rule change (SR–ISE–2010– 002) be, and it hereby is, approved. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Florence E. Harmon, Deputy Secretary. In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. [FR Doc. 2010–6204 Filed 3–19–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–61711; File No. SR–Phlx– 2010–37] Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Controller Space Fee March 15, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 26, 2010, NASDAQ OMX PHLX, Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to offer the Controller Space storage service at no charge. While changes to the Fee Schedule pursuant to this proposal are effective upon filing, the Exchange has designated these changes to be operative on March 1, 2010. The text of the proposed rule change is available on the Exchange’s Web site at https:// nasdaqomxphlx.cchwallstreet.com/ NASDAQOMXPHLX/Filings/, on the Commission’s Web site at https:// www.sec.gov, at the principal office of the Exchange, and at the Commission’s Public Reference Room. U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. footnote 5 and accompanying text. 11 15 U.S.C. 78f(b)(5). VerDate Nov<24>2008 16:41 Mar 19, 2010 Jkt 220001 1. Purpose The purpose of the proposed rule change is to offer the Controller Space service at no charge. Currently, the Exchange assesses a Controller Space storage fee of $250.00 per month on Members, Member Organizations, participants and participant organizations on the options and foreign currency trading floors. The Controller Space storage refers to space near the Exchange’s trading floor that stores Member equipment that is used by Members, Member Organizations, participants and participant organizations to support their floor operations. Previously, NASDAQ OMX PHLX’s match infrastructure was located at 1900 Market Street in Philadelphia, PA, the location of the NASDAQ OMX PHLX trading floor. The NASDAQ OMX PHLX match infrastructure was relocated to the New York City area. As a result of this relocation, NASDAQ OMX PHLX now only offers a storage facility at the 1900 Market Street location for member equipment. The Controller Space storage services being offered to Members by NASDAQ OMX PHLX have been subsumed by co-location services which are currently being offered by NASDAQ Technology Services LLC (‘‘NTS’’) pursuant to agreements with the owner/operator of its data center where both the Exchange’s quoting and trading facilities and co-located customer equipment are housed.3 A recent proposed rule change proposes to codify fees for these existing co-location 12 15 13 17 10 See A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 3 Currently, the Exchange provides its current colocation services through data centers located in the New York City and Mid-Atlantic areas. E:\FR\FM\22MRN1.SGM 22MRN1

Agencies

[Federal Register Volume 75, Number 54 (Monday, March 22, 2010)]
[Notices]
[Pages 13636-13638]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-6204]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61710; File No. SR-ISE-2010-02]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Order Approving Proposed Rule Change To Amend Exchange Rules 
Related to Cut-Off Time for Contrary Exercise Advice Submissions

March 15, 2010.

I. Introduction

    On January 11, 2010, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change relating to the cut-off time for 
submitting contrary exercise advices to the Exchange. The proposed rule 
change was published for comment in the Federal Register on February 8, 
2010.\3\ This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 61458 (February 1, 
2010), 75 FR 6237.
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange has proposed to amend Rule 1100 to extend the cut-off 
time to submit contrary exercise advices (``CEAs'') \4\ to the Exchange 
to 7:30 p.m. The Exchange also has proposed to make certain non-
substantive changes to reorganize the text of Rule 1100 to more clearly 
present the existing requirements and to eliminate duplicative 
language.
---------------------------------------------------------------------------

    \4\ Contrary exercise advices are also referred to as Expiring 
Exercise Declarations in the OCC rules.
---------------------------------------------------------------------------

    Pursuant to Rule 805 of the Options Clearing Corporation (``OCC''), 
certain options that are in-the-money by a specified amount will be 
automatically exercised. This procedure is known as ``Exercise-by-
Exception'' or ``Ex-by-Ex.'' Under the Ex-by-Ex process, options 
holders holding option contracts that are in-the-money by a requisite 
amount and who wish to have their contracts automatically exercised 
need take no

[[Page 13637]]

further action. However, under OCC Rule 805, option holders who do not 
want their options automatically exercised or who want their options to 
be exercised under parameters different than the Ex-by-Ex procedures 
must instruct OCC of their ``contrary intention.'' Pursuant to ISE Rule 
1100 option holders must also file a CEA with the Exchange notifying 
the Exchange of the option holder's contrary intention. ISE Rule 1100 
is designed, in part, to deter individuals from taking improper 
advantage of late breaking news by requiring evidence of an option 
holder's timely decision to exercise or not exercise expiring equity 
options. Members satisfy this evidentiary requirement by submitting a 
CEA directly to the Exchange, or by electronically submitting the CEA 
to the Exchange through OCC's electronic communications system. The 
submission of the CEA allows the Exchange to satisfy its regulatory 
obligation to verify that the decision to make a contrary exercise was 
made timely and in accordance with ISE Rule 1100.
    ISE Rule 1100 currently provides option holders until 5:30 p.m. on 
the day prior to expiration to make a final decision to exercise or not 
exercise an option that would otherwise either expire or be 
automatically exercised. An Exchange member may not accept CEA 
instructions from its customer or non-customer accounts after 5:30 p.m. 
The current rule, however, gives Exchange members up to 6:30 p.m. to 
actually submit these CEA instructions to the Exchange where such 
member uses an electronic submission process. Pursuant to the rule, if 
members do not employ an electronic submission procedure, they are 
required to submit CEAs for non-customer accounts by the 5:30 p.m. 
deadline. This 5:30 p.m. deadline for manual submission of CEAs for 
non-customer accounts is earlier than the electronic submission 
deadline to prevent firms from improperly extending the 5:30 p.m. 
deadline to exercise or not exercise an option.\5\ In either case, 
whether or not submitting the CEA electronically or manually, the final 
decision to issue a CEA instruction must be made at 5:30 p.m.
---------------------------------------------------------------------------

    \5\ According to the Exchange, this requirement is based on the 
difficulty of monitoring a manual procedure that has different times 
for deciding whether or not to exercise the option and for the 
submission of the CEA.
---------------------------------------------------------------------------

    This current process of submitting CEAs was approved by the 
Commission in 2003.\6\ The Exchange represents that in 2003, the Ex-by-
Ex thresholds were $0.75 for customers and $0.25 for broker-dealer 
accounts. In 2009, the Ex-by-Ex threshold had narrowed significantly to 
$0.01 for all accounts. The Exchange notes that this decrease in the 
Ex-by-Ex threshold, coupled with the dramatic increase in option 
trading volume from 2003 to 2009, has led to a larger number of CEA 
instructions and has increased the burden on firms to process and 
submit instructions on a timely basis.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release Nos. 47885 (May 16, 
2003), 68 FR 28309 (May 23, 2003) (SR-Amex-2001-92); 48505 
(September 17, 2003), 68 FR 55680 (September 26, 2003) (SR-ISE-2003-
20); 48640 (October 16, 2003), 68 FR 60757 (October 23, 2003) (SR-
PCX-2003-47); and 48639 (October 16, 2003), 68 FR 60764 (October 
23,2003) (SR-Phlx-2003-65).
---------------------------------------------------------------------------

    As a result of these concerns, the Exchange has proposed to extend 
the current 6:30 p.m. deadline for electronic submission of CEA 
instructions to the Exchange by one additional hour, to 7:30 p.m. In 
its filing, the Exchange stated that the proposed rule change is 
necessary to address concerns expressed by members that, given the 
decrease in the Ex-by-Ex threshold and the increase in trading, the 
existing deadline for submitting CEAs to the Exchange is problematic 
for timely back-office processing. According to the Exchange, the 
proposed additional one hour will address this concern by further 
enabling firms to more timely manage, process, and submit the 
instructions to the Exchange.
    The Exchange also proposes to allow a member to submit a CEA to the 
Exchange by 7:30 p.m. on a day when there is a modified close of 
trading. The current rule allows a member to submit an electronic CEA 
to the Exchange up to 2 hours and 30 minutes after the close of trading 
on a day when there is a modified close of trading. The proposed rule 
change will make the submission deadline for electronic CEAs on both 
regular and modified close expiration days uniform and, according to 
the Exchange, this should help to reduce errors.
    The ISE noted in its filing that the proposed rule change does not 
change the substantive requirement that option holders make a final 
decision by 5:30 p.m. whether to exercise or not exercise an option 
that would otherwise either expire or be automatically exercised. The 
Exchange represented that it will continue to enforce the 5:30 p.m. 
decision making requirement, while also allowing additional time to 
process and submit the CEA instructions. As noted in the filing, the 
Exchange believes that the proposed rule change will benefit the 
marketplace, particularly back-office processing. The Exchange also 
represents that the additional processing time and Exchange submission 
deadline will not conflict with OCC submission rules or cause any OCC 
processing issues.

III. Discussion and Commission's Findings

    After careful review of the proposed rule change, the Commission 
finds that the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange.\7\ In particular, the Commission finds 
that the proposed rule change is consistent with the provisions of 
Section 6(b)(5) of the Act,\8\ which requires, among other things, that 
ISE rules must be designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \7\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition and capital 
formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change is 
appropriate because, by extending the deadline to submit electronic 
CEAs from 6:30 p.m. to 7:30 p.m., the proposal should provide Exchange 
members with sufficient additional time to process the CEAs submitted 
by options holders which, according to the Exchange, have steadily 
increased with the increased options trading volume of recent years and 
the narrowing of the Ex-by-Ex threshold. Thus, consistent with Section 
6(b)(5) of the Act,\9\ the proposal will foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, by addressing the back-office processing problems noted 
by the Exchange that exist under the current 6:30 p.m. deadline for 
electronic submission of CEAs.
---------------------------------------------------------------------------

    \9\ Id.
---------------------------------------------------------------------------

    In approving the proposal, the Commission emphasizes that the 
Exchange is not changing the time by which options holders must notify 
Exchange members of the contrary intention, which will remain at 5:30 
p.m., and will continue to be enforced by the Exchange as it is 
currently.

[[Page 13638]]

Because the deadline for options holders to make a decision to exercise 
or not exercise an expiring option that would otherwise either expire 
or be automatically exercised is not changing, the Commission also 
believes that proposal will not compromise one key goal of the rule, 
which is to prevent individuals from taking improper advantage of late-
breaking news.
    The Commission also notes that the time for submission of CEAs for 
non-customer accounts on a manual basis will remain at 5:30 p.m. The 
Commission continues to believe that this time difference for manual 
submissions is warranted given the potential difficulties in monitoring 
compliance with a manual procedure, as noted by the Exchange.\10\
---------------------------------------------------------------------------

    \10\ See footnote 5 and accompanying text.
---------------------------------------------------------------------------

    The Commission also believes that the Exchange's proposal to change 
the deadline for submitting CEAs to the Exchange to 7:30 p.m. on days 
when there is a modified close of trading is appropriate. A uniform 
deadline for submitting CEAs, irrespective of the closing time, will 
eliminate any possibility for error when determining what the 
submission deadline is on a modified close expiration day. As described 
above, current rules set the deadline on modified close expiration day 
at 2 hours and 30 minutes after the close. Since the modified close 
time does vary on these modified days, the CEA times could vary as 
well, which may have proved confusing to Exchange members. Thus, the 
change to a 7:30 p.m. cut-off for all electronic submission of CEAs, 
irrespective of the market's closing time, should help to avoid 
confusion and reduce the potential for errors. Finally, the Commission 
also finds that the Exchange's non-substantive changes to the text of 
Rule 1100 to more clearly present the existing requirements and to 
eliminate duplicative language is appropriate.
    Based on the above, the Commission believes that the proposed rule 
change is consistent with Section 6(b)(5) of the Act \11\ in that it 
will prevent fraudulent and manipulative acts and practices, promote 
just and equitable principles of trade, foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, 
protect investors and the public interest.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-ISE-2010-002) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-6204 Filed 3-19-10; 8:45 am]
BILLING CODE 8011-01-P
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